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Europe Route Chosen for Azerbaijan Gas

LONDON — The developers of a major natural gas field in Azerbaijan have decided that the western end of their export pipeline to Europe should take a shorter, southern route ending in Italy rather than a northern one to Austria, one of the companies competing for the pipeline business said Wednesday.

The Austrian energy company OMV, the lead shareholder in the company vying for the northern route, said it had been informed it would not win the pipeline deal, which by some estimates was to cost $4 billion.

The formal announcement, which was expected to be announced in Azerbaijan on Friday, is likely to favor a project called the Trans Adriatic Pipeline, which would run about 900 kilometers, or 560 miles, through Greece and Albania, ending in southern Italy. The Austrian route would have been about 1,300 kilometers long.

The winning route will convey gas to Europe through a connection to a new pipeline planned to run through Turkey that links back to the Azeri field through Georgia.

A spokesman for the assumed winner, the Trans Adriatic Pipeline group, which is based in Baar, Switzerland, declined to comment Wednesday.

The reasons for the decision by the gas field’s developer — the Shah Deniz II group — were not disclosed on Wednesday. The group includes Socar, the Azerbaijani national oil company; BP of Britain; Statoil of Norway; and Total of France.

The decision to go with a South European route is a milestone in a long effort by Azerbaijan and its partners — particularly BP, the field operator — to bring gas from the huge reserves beneath the Caspian Sea directly to Europe in competition with Russia. Although Azerbaijan’s role as a supplier to Europe might start relatively small, it could grow as the country develops additional finds known to lurk beneath the Caspian’s floor.

BP and other members of the Shah Deniz II group are expected to take a 50 percent shareholding in the pipeline. Shah Deniz II is a gas project in the Caspian Sea, off eastern Azerbaijan, which along with its export pipelines is expected to cost more than $40 billion. The group has not made a final investment commitment to proceed with the project, although a decision is expected by the end of the year. A separate Azeri field, the Shah Deniz I, is already producing and exporting gas to Georgia and Turkey.

Andrew Neff, a Moscow-based analyst at the market research firm IHS in Moscow, said that Socar’s agreeing last week to take a majority stake in the Greek gas distributor Desfa may have tipped the balance toward the Trans Adriatic Pipeline. “This gives Azerbaijan a direct supply relationship with Greece,” he said.

Other factors may have included cost; gas demand in Europe has been severely weakened by the continued economic doldrums. The longer pipeline to Austria was expected to be somewhat costlier to build and operate than the route to Italy. In addition, the consortium leaders may believe that Italy and Greece are better markets for gas than countries like Bulgaria and Hungary.

But Italy, for one, is oversupplied with gas and has been trying to trim imports from countries like Algeria. The Greek economy also appears to be a long way from recovery.

The biggest loser in the deal is OMV, which did the major research and planning for the northern-route consortium, called Nabucco West, investing about 37 million euros, or $48 million, to date. The company considers its plan to transport Azeri gas dead, according to an OMV spokesman, Johannes Vetter. Mr. Vetter said the company was still hopeful, though, of using the work it had put into Nabucco to help build pipelines to bring gas from offshore fields being developed off Bulgaria.

But the decision is a bitter blow to OMV, as well as to countries along the Nabucco route like Bulgaria, Hungary and Romania that had hoped to tap into the line and profit from transit fees. They also hoped to reduce their energy dependence on Russia.

Although BP has said that it wants a solution that benefits customers along both routes, with both pipelines eventually being completed, some analysts say the Nabucco group might not be able to bounce back. “They are now competing with everyone else,” Mr. Neff said.

Whatever the route, the 10 billion cubic meters, or 353 billion cubic feet, of gas that is initially expected to come through the new pipeline each year would be small compared with the estimated 140 billion cubic meters of Russian gas exports to Europe.

The Russian gas giant Gazprom is also planning a pipeline, called Southstream, that would run from Russia under the Black Sea and pass through Bulgaria, Serbia and Croatia to wind up in northern Italy.

Winners from the decision Wednesday include Statoil and a Swiss company, Axpo, which are large shareholders in the Trans Adriatic Pipeline project. E.On, the big German utility, is also a shareholder.

Article source: http://www.nytimes.com/2013/06/27/business/global/europe-route-chosen-for-azerbaijan-gas.html?partner=rss&emc=rss

News Analysis: Gas Field Attack Is a Blow to Algeria’s Faltering Energy Sector

LONDON — It is telling and a significantly deep blow to the Algerian economy that the militant attack and hostage-taking in that country has occurred at a foreign-run natural gas field.

Algeria’s economy, though far from vibrant, is heavily dependent on its oil and gas industry. And the country has been desperately trying to attract foreign investment — something that the hostilities at the joint venture owned by BP, Statoil and the Algerian state company, Sonatrach, is unlikely to help.

“I wouldn’t be surprised if those investors Algeria might be courting are even more wary now than they were before,” said Rachel Ziemba, a Middle East analyst at Roubini Global Economics in London.

The Algerian economy remains among the most state-dominated among the Arab countries, with few private businesses of any size and little foreign investment. Energy extraction accounts for about 60 percent of government budget revenue and 97 percent of Algeria’s exports, according to the C.I.A. World Fact Book. But oil and gas are not big employers, making them of little help in producing jobs in a country of about 38 million people and 10 percent unemployment.

With a per capita gross domestic product that works out to about $7,300 a year, Algeria is somewhat wealthier within the Arab world than Egypt, at $6,500, but far behind true oil-wealth emblems like Qatar, where per capita G.D.P. is nearly $100,000.

And even the energy exports have stagnated over the past five years. Moreover, the government would need an oil price of $121 a barrel to balance its books, the International Monetary Fund estimated in November. With oil prices currently in the $110 range, relief is not in the immediate offing.

A slow pace of investment has caused Algerian natural gas production to decline more than 10 percent from 2005 to 2011. And its share of natural gas imported by Europe has also fallen, to 14 percent in 2010 from 21 percent in 2002, according to the European statistical agency Eurostat.

Until recently, the government was unwilling to spend its oil and gas earnings, building up reserves of around $180 billion. After the Arab Spring revolutionary movements began in neighboring Tunisia and Libya in 2011, and food riots in Algeria later that year, the government opened up the taps, spending more on subsidized staples — and imported military equipment.

Last September, amid worries that Algeria could be buffeted by the same forces that have toppled other governments across North Africa, the government, which has been headed by president Abdel Aziz Bouteflika, brought in a technocratic prime minister, Abdelmalek Sellal, with some leeway to court private investment.

While the Sellal government is putting through a hydrocarbons law designed to drum up investment, it may not be “the outsized gesture” needed to put Algeria back on the international oil companies’ radar, said Geoff D. Porter, principal at North Africa Risk Consulting.

The most high-profile foreign investment deal has been an agreement by the French automaker Renault to assemble cars in Oran, in the west of the country. The first cars are scheduled to roll out of the factory next year — the first Renaults from Algeria since the government nationalized one of the company’s car plants after the country won its independence from France in 1962.

Ms. Ziemba said Algeria was among the weakest countries in the Middle East and Africa in terms of medium-term growth prospects. Annual economic growth, estimated by the International Monetary Fund at 2.5 percent for 2012, is not enough to reduce unemployment.

Until recently, Algeria has done little to attract foreign investment. There are a handful of high-profile foreign ventures in telecommunications and other industries, but the government sent a chill through the investment community when it used an attempt by an Egyptian entrepreneur, Naguib Sawiris, to sell his global mobile telecom interests as an opportunity try to nationalize his lucrative Algerian operation, Djezzy.

Mr. Sawiris finally sold to an Amsterdam-based company, Vimpelcom in 2010. But government in is still trying to take over the Algerian unit and has refused to let its owners invest in new equipment, a Vimpelcom spokesman said.

Even investment in the oil and gas industry has stagnated, with oil companies balking at difficult terms. Decision-making in the industry has also been frozen by corruption scandals at the national oil company Sonatrach, which led to the ouster of most of the national company’s top executives in 2010.

Analysts say the new management has seemed unwilling to take the risk of making decisions.

“Algeria’s upstream sector has been hampered by a double challenge: development delays, partly due to fiscal terms, and institutional difficulties,” said Leila Benali, an analyst at the consultants IHS CERA in Paris.

Article source: http://www.nytimes.com/2013/01/18/business/global/gas-field-attack-is-a-blow-to-algerias-faltering-energy-sector.html?partner=rss&emc=rss

Europe Route Chosen for Azerbaijan Gas

News Analysis: Gas Field Attack Is a Blow to Algeria’s Faltering Energy Sector

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